Business Loans

PPP Loans and Other COVID-19 Business Relief

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Lenders are once again accepting Paycheck Protection Program (PPP) loan applications, giving struggling business owners another shot at forgivable federal funding during the coronavirus pandemic. That’s in addition to the COVID-19 Economic Injury Disaster Loan (EIDL) available directly from the U.S. Small Business Administration (SBA). Congress injected new life into both programs in a $900 billion relief package that passed in December 2020.

But these are just two changes in the long-awaited aid package. Many small businesses are eligible for:

Emergency loans and grants

The U.S. Small Business Administration (SBA) opened its disaster loan program to businesses affected by COVID-19 as part of the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act that passed in March 2020. It was intended to be used for working capital, fixed debts and accounts payable. The SBA has now renewed the loan program for 2021.

The interest rate on EIDLs is:

  • 3.75% for small businesses
  • 2.75% for nonprofits
EIDL advance returns

Congress also restored funding for the EIDL advance, allowing businesses to apply for as much as $1,000 per employee, up to a $10,000 cap. This is money that would not need to be repaid and does not count against a Paycheck Protection Program (PPP) loan for businesses that receive both an EIDL and a PPP loan. Notably, an EIDL would need to be repaid — it’s not forgivable like a PPP loan — over a term as long as 30 years.

You may qualify for the advance if you:

  • Have 300 or fewer employees
  • Are in a low-income community, as defined by the Internal Revenue Code
  • Suffered an economic loss of 30% or more
How to apply

Visit the SBA’s disaster loan assistance portal to apply for a COVID-19 EIDL. EIDLs are issued directly through the SBA, unlike PPP loans that are made through approved banks, credit unions and other lenders.

New grants for live entertainment venues

Congress set aside $15 billion for live entertainment venues shuttered during the pandemic. This includes theaters, live performing arts organizations and independent movie theaters that can demonstrate they suffered at least a 25% reduction in revenue in the first, second or third quarter of 2020, as compared to the same quarter in 2019. These are funds that would not need to be repaid.

Forgivable Paycheck Protection Program (PPP) loans

Congress has also revived the PPP, the loan first created by the CARES Act that closed on Aug. 8, 2020 and re-opened Jan. 11, 2021. The loan may be forgiven if at least 60% of funds are used for payroll over eight or 24 weeks. The remaining amount, up to 40%, may be used for certain mortgage expenses, rent, utilities and expenses related to the pandemic.

Businesses that received a PPP loan in 2020 and need a second loan will find a few changes: 

  • Maximum loan amounts: Loans are capped at $2 million; small businesses could previously borrow up to $10 million. Hotels and restaurants are eligible for larger loans this time, 3.5 times their average monthly payroll costs.
  • Eligibility requirements: Loans are restricted to eligible businesses with 300 or fewer employees that can demonstrate at least a 25% reduction in gross receipts. The first round of PPP loans was open to companies with up to 500 employees.
  • Access: Businesses that had trouble getting PPP loans in the first round, especially those in disadvantaged or rural areas, may find increased opportunities in this new round. Congress earmarked money for community lenders, companies with 10 or fewer employees and businesses in low-income and minority areas.
  • Loan forgiveness: The forgiveness process hasn’t changed, but the new addition is what can be forgiven, plus a simplified application for those who borrow $150,000 or less. Expenses eligible for forgiveness have broadened to include personal protective equipment for you and your workers; supplier costs; operations expenditures; and property damage as result of civil unrest.
PPP loan details

If you don’t qualify for forgiveness, you would have to repay the loan with interest:

    • 1% interest rate
    • Terms up to 5 years

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How much PPP funding could you receive?

The SBA will once again use an applicant’s payroll costs to determine the size of their PPP loan. For most nonseasonal employers, your maximum loan amount would be equal to 2.5 times your average monthly payroll costs.

When calculating your average monthly payroll costs as an employer, you may only include the following payroll expenses:

  • Salary, wages, commission or similar compensation
  • Payment of cash tips, or equivalent compensation
  • Payment for vacation, parental, family, medical or sick leave
  • Allowance for dismissal or separation
  • Required payments for group health care benefits, including insurance premiums
  • Payment of retirement benefits
  • Payment of state or local tax on the compensation of employees

Sole proprietors, independent contractors and self-employed business owners can include any wages, commission, income, net earnings or similar compensation when calculating payroll costs, as long as the total does not exceed $100,000 in one year.

How to apply

On Jan. 11, 2021, community development financial institutions (CDFIs), certified development companies (CDCs), minority depository institutions and microlenders began accepting applications from first-time PPP borrowers followed by larger banks, credit unions and alternative lenders from first- and second-time borrowers.

Debt relief on other SBA loans

Congress has enhanced existing SBA programs, including the 7(a), 504 and microloan programs. The SBA also resumes loan debt forgiveness — starting in February, the federal government will pick up the tab for three months of monthly principal and interest on loans issued prior to the CARES Act. New loans made or approved through Sept. 30, 2021 are eligible for six months of government payment of principal and interest. In both cases, the amount forgiven is capped at $9,000 per month.

SBA Express loans

Borrowers who are interested in an SBA loan but need funds quickly can find up to $1 million (normally $350,000) through the Express loan program until Oct. 1, 2021. In addition, this program also offers an Express bridge loan of up to $25,000, which is designed to provide nearly immediate funding while you wait for long-term financing.

Extended unemployment assistance

The CARES Act introduced the Pandemic Unemployment Assistance program for those who lost wages as a result of COVID-19. The program opens up state-level unemployment benefits to those who are typically not eligible, including:

  • Self-employed individuals
  • Independent contractors
  • Workers with limited employment history

Each recipient of unemployment insurance or Pandemic Unemployment Assistance will receive an additional $300 weekly up to March 14, 2021.

How to apply

Each state runs its own unemployment insurance program that provides funds for people who lose their jobs through no fault of their own. You must meet your state’s individual eligibility requirements.

Visit CareerOneStop.org, a resource from the U.S. Department of Labor, to find state-by-state details about unemployment benefits and requirements.

Increased payroll tax credits

Congress extended — and tweaked — several tax credits for small business owners. They may claim:

  • The costs of providing paid sick and family leave to their employees. Through March 2021, eligible employers could retain the amount of payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than deposit them with the IRS.
  • 70% of wages paid to employees during the COVID-19 crisis, up to $10,000 per quarter through July 1, 2021. The credit is available to business owners with fewer than 500 employees whose operations were fully suspended as the result of a shutdown order or whose gross receipts dropped more than 20% compared to the same quarter in the previous year. PPP recipients can now participate in the Employee Retention Tax Credit.

Additional tax provisions include:

  • Deferment of employment taxes: Employers can also defer payment of their share of Social Security tax through Dec. 31, 2021.
  • Modification of net operating losses (NOL): Unchanged in the most recent legislation, NOLs are typically subject to a taxable-income limit and may not be applied to previous years to reduce income. The CARES Act allowed business owners to take NOLs from tax years 2018, 2019 and 2020 and carry those back five years to offset income and provide cash flow to use during the crisis.
  • Exemption from excise tax: A temporary waiver of excise tax for producers of beer, wine and distilled spirits is now permanent.

You can find more information about coronavirus tax relief on the IRS website.

FAQs

Can I apply for SBA disaster assistance if I already have a loan?

Yes, you can apply for an SBA disaster loan if you have existing business debt. Business owners may be eligible for disaster assistance regardless of what type of financing they already have.

How long does it take to get an SBA disaster loan?

It takes the SBA an average of 21 days to make a decision on disaster loans. After reaching an agreement and signing loan documents, you could receive funds within three to five days.

Where do I get an SBA disaster loan or PPP loan?

Like traditional SBA 7(a) loans, PPP loans are issued through partner lending institutions. Conversely, SBA disaster loans are direct loans, funded through the U.S. Department of the Treasury.

Can I apply for a disaster loan and a Paycheck Protection Program loan?

Yes, with one catch: Borrowers cannot use a PPP loan and the COVID-19 EIDL for the same purpose. Borrowers with an EIDL unrelated to COVID-19 can apply for a PPP loan and receive the option to refinance the disaster loan into the PPP loan.

How do I get loan forgiveness?

The portion of the PPP loan that would be forgiven would be equal to the amount spent on eligible expenses. Amounts that aren’t forgiven would be subject to 1% interest.

 

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